Greeting of the New Year 2020!
Predicting movements in interest rates, foreign currency, government policies, personal taxation rates, inflation and financial markets is a foolish exercise as these are not in one’s control. Hence, controlling the controllable would be very critical in achieving one’s financial goals. The following points which are in one’s control could be followed in managing one’s Personal Finances in the year to come and in the future:
1. Live within your means and spend after you save.
2. Invest in self (be it in a training programme, certification course, etc, so as to keep updated) because that will pay the highest financial returns, in this ever changing world.
3. Buy adequate insurance to cover all risks which would affect yours and family’s finances.
4. Invest your savings in well regulated, tax efficient products.
5. Have an Asset Allocation Policy i.e split your assets between different assets classes based on your risk profile, time horizon and financial requirements. The portfolio should be allocated between aggressive, conservative and liquid assets.
6. Aggressive assets will help build wealth with larger volatility and non- linear returns. Conservative assets would give stability/ regular income and liquid assets could be used in case of emergencies.
7. Within an asset class, diversify across styles to reduce the risk of concentration and style bias.
8. Invest in volatile assets like equity in a gradual manner so as to reduce the risk of market timing.
9. Do not compare returns between asset classes as it would be like comparing apples and oranges.
10. Focus on low cost products and options wherever available. But do not associate low cost with high returns.
11. Do not let greed, emotions and personal biases drive your financial investment decisions.
11. Rebalance your portfolio based on asset allocation policies at least once a year based on your financial condition, risk profile and tax situation. Let not the immediate past performance dictate the financial allocation.
12. Manage market risk. However, avoid fraudulent transactions.
13. In case this sounds too complicated, engage with a Financial Planner who is registered under a regulated body, and where there is no conflict of interest.
14. There is nothing called free lunch in financial markets and financial advise. In case, one wants to manage their own personal finances, then one needs to invest their time and resources which will eat into their professional and family time. On the other hand, partnering with a Financial Planner helps one to focus on their other passions in life.
Over long periods of time, financial product selection and market timing would not be the critical factor in your overall portfolio return. On the contrary, a strategy focused on process, discipline, financial goals, time horizon, patience, asset allocation and diversification could be the key factors to earn better risk adjusted returns.
We wish the year 2020 and beyond, will help you to build your wealth in the most appropriate way so as to reap the benefits of safety, liquidity, tax efficiency and returns.
1. Market linked investments like Stocks, mutual funds are subject to market risks. Read scheme related documents carefully before investing.
2. Past performance of any asset class is not an indicator of future performance.
3. Do visit www.naveenrego.com for the disclosure statement.
4. Assumptions on growth rates are purely indicative.
Naveen Julian Rego-CFPCM
SEBI Registered Investment Adviser
03rd January, 2020